First-ever aboriginal oil sands deal built on common interests

CALGARY — There have been lots of firsts in Blaine Favel’s remarkable career.

His latest is a joint venture with a Metis community in Alberta that paves the way for what is believed to be the first oil sands project owned by aboriginals. It also fuels optimism that the seemingly incompatible values between aboriginals and the oil sands industry can be bridged when there is mutual benefit.

Mr. Favel, the CEO of One Earth Oil & Gas Inc., a private oil junior based in Calgary, has locked up a joint venture with the Gift Lake Metis Settlement in the Peace River area of northwest Alberta to develop the Gift Bluesky heavy oil project.

The Idle No More movement presents one face of Canada’s First Nations: combative, frustrated with government, impoverished, opposed to resource projects while claiming entitlement to revenue sharing.

Aboriginal entrepreneurs such as Wilf Lalonde present the other face. He’s a Cree from northern Alberta who sees big opportunities to work in and profit from oil and gas and other resource projects, and strives to make First Nations self-sufficient.
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The Canadian oil industry’s only aboriginal CEO, Mr. Favel and his technical team believe the settlement sits on the same trend as other prolific deposits being produced by companies such as Royal Dutch Shell PLC and Penn West Exploration Ltd. in the Peace River oil sands.

In addition to being half owners, The Gift Lake, a 1,000-member community of hunters, fishermen and oil workers, will undertake much of the preparation work for a 3D seismic program and the drilling of four wells to size-up the resource. The partners will start with a pilot project, which Mr. Favel believes will lead to significant production.

The community agreed to become oil sands producers because their incentives are aligned with those of One Earth, a subsidiary of Toronto-based Sprott Resources Corp. that focuses on economic development in partnership with aboriginals.

“They … will get cash flows from the provision of services and employment, from a return of the wells, and from the royalties,” Mr. Favel, a former Saskatchewan Indian chief, lawyer, former senior Canadian diplomat and Harvard University graduate, said in an interview.

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“We are developing it in a very environmentally sensitive manner. We met with the elders and with the community, so we are very sensitive to the local needs of the community and it’s worked well for us.”

“It’s a small portion of their territory, and we like to think that if we continue to be a good partner and we continue to maintain the trust with the settlement, we will do more things together with them.”

Under the deal, One Earth leased 12 sections of lands from the Alberta government located in the heart of the Metis settlement and has the option to lease another 12.

While surrounded by oil activity, there has been no recent development inside the settlement because of a 17-year standoff between Alberta’s Metis and the provincial government.

After lengthy negotiations with the Gift Lake and the province, One Earth and Gift Energy Ltd., the settlement’s oil company, announced their joint venture last week.

Mr. Favel, 48, represents a growing number of aboriginals who are charging into oil production as full partners, building on work done by First Nations entrepreneurs in the oil services side of the industry.

In his view, they are just getting started. In Alberta, the Frog Lake First Nation is already a significant conventional heavy oil producer and the most successful to date; the Cold Lake First Nations is gearing up to produce their oil resources; the Fort McKay First Nation, which has made a fortune providing services to oil sands companies, is expected to eventually put into production the vast oil sands resources under its lands in the Athabasca basin. In Saskatchewan, the Onion Lake Cree Nation has partnered with two oil companies.

A Cree from Saskatchewan, Mr. Favel moved into oil and gas four years ago. It was a logical next step after a long career in public service and private enterprise focused on building opportunities for aboriginals.

He grew up in the Poundmaker First Nation reserve, about 40 miles from Lloydminster on the Saskatchewan side of the border. His mother, Lucy, 86, who became a community health nurse, was an orphan raised by the son of rebel chief Big Bear. His late dad, Henry, was a chief and rancher. Both were big believers in education.

“My mom led us to believe that our current circumstance weren’t the end result and with education we could have success, and I think everyone in my family experienced that,” he said.

“Growing up there were lots of negative role models to follow if you chose to follow them,” he said.

“In grade 10, I got it into my head that I was going to quit high school, because that was the thing that people were doing in my peer group. My dad left me at the field to pick rocks. He dropped me off at 7 a.m. and he picked me up at supper time. After two weeks of this I thought this was really terrible and I was happy to go back to school, and that was a good lesson — that unless you got an education, you got difficult work.”

The lesson led to an education degree at the University of Saskatchewan, a law degree from Queen’s University, and an MBA from Harvard Graduate School of Business, where he was the first Canadian aboriginal to attend.

When he was grand chief of the federation of Saskatchewan Indian Nations, he created with then Premier Roy Romanow the Saskatchewan Indian Gaming Association, the first Indian-controlled gaming company. He established the First Nations Bank of Canada in partnership with the Toronto-Dominion Bank. At Sprott Resources Corp., he helped found One Earth Farms, which has grown into one of Canada’s largest farming operations in partnership with First Nations farmers.

He worked as a lawyer for Bennett Jones LLP and as an investment banker for RBC Capital Markets.

He served as a senior diplomat and advisor to the federal government on indigenous issues and was a senior advisor to two Assembly of First Nations National Chiefs — Ovide Mercredi and Phil Fontaine.

Mr. Favel said the differences between First Nations and the energy sector stem from two world views:

There is the long view of aboriginals, many of whom live in remote communities, are surrounded by nature and live by its offerings and who believe in preserving the environment for future generations. And there is the view of corporate leaders, whose incentives are based on delivering business plans that are judged on a quarter-to-quarter basis.

Aligning the two means a lot of creative work to get to a reasonable position, which is often a slower process, involves more disclosure, more environmental protection, and transfer of some of the opportunities to the aboriginal groups for employment, training and business development, he said.

But progress is happening. While First Nations may seem uncompromising when it comes to the environment, it is not a unanimous position and many are doing well in the oil industry, he said.

Meanwhile, the oil industry, despite perceptions of being run by “cowboys” and of “intolerance,” has created more opportunities for aboriginals than all other sectors combined, he said.

“All you can do is do sustainable development the best that industry can provide. For some people zero development is the answer, which I don’t think is a reasonable position, nor is unfettered development, without environmental sensitivity.”

If there is blame to be assigned for the divide between the two, he said it’s with governments that are passing the buck – the federal government saying resources are a provincial responsibility, the provinces saying aboriginals are a federal responsibility, leaving corporations to scramble to find common ground.